Investing legend Jim Rogers has put together a new index targeting commodity producers, which will soon underly an exchange traded fund (ETF).
The Rogers Van Eck Hard Assets Producers Index (RVEI) gives investors a chance to ride the commodities bull by accessing a universe of producers from all over the world. Most of the index’s components are producers of raw materials for agriculture, alternative energy, base and industrial metals, energy, forest products and precious metals.
“From what I can see, there is not another index like it,” he told us. “There are no indexes that are specifically targeted at stocks that are major producers of commodities.” The others, he says, are primarily made up of American and Australian companies.
His new index is a global one made up of 39 countries, meant to truly capture the global commodities boom, because countries such as the United States and Canada aren’t the only major producers. The United States is 35.8% of the fund and Canada is 12%. Britain is 5.9%, Russia is 5.1%, China is 4.8% and Brazil is 4.1%. Another 33 countries make up the remaining 32%.
“The whole world is represented, and most countries produce one or two commodities,” Rogers says.
The inspiration for the index came from conversations Rogers continually was having with people who would tell him they couldn’t bring themselves to invest in commodities.
“Until they change their views or the world changes, we decided we should be able to offer them a choice. I won’t get into who’s right and who’s wrong.”
Up, Up and Away
High commodity prices could be here to stay, he says, although he points out that there have been corrections. Since the current oil boom began in 1999, the prices have gone down 40% to 50% three times. “Everything can go down and correct, but that’s not going to be the end of the bull market,” Rogers says.
He points out, too, that any number of catastrophic events can emerge from out of the blue to send prices down sharply, but that the bull market isn’t over until someone discovers more energy in areas that are accessible.
As for blaming speculators? Hogwash.
“Whenever there’s supply and demand, the money goes there, whether it’s stocks, bonds or currency,” Rogers says. Eliminating speculation would simply eliminate all investment and eventually just drive it overseas.
He also points out that in the 1990s, the fundamentals in commodities were negative, and it kept investors out. When fundamentals shift to the positive, they come in and prices go up. “They wouldn’t go higher if the fundamentals weren’t positive.”
Staying Out of It
Roger cautions against ignoring economists’ warnings, citing the 1930 Hawley-Smoot Tariff Act as a prime example of the dire consequences of doing so. In the United States, more than 1,000 economists signed a petition against the legislation that would raise tariffs on imported goods to record levels.